It has been a rough few years for the network equipment manufacturers, led by giant Cisco Systems, Inc. (NASDAQ:CSCO), as operators cut back equipment purchases during the financial crisis and new technologies lowered corporate spending requirements. However, the rise of remote asset management activities, like usage-based auto insurance and positive train control, has made reliable wireless networks more important than ever. Recently, private equity has been finding value in the sector, including Avista Capital Partners’ offer to acquire Telular Corporation (NASDAQ:WRLS) for $12.61 per share in cash or roughly $253 million.
Telular Corporation (NASDAQ:WRLS) is a niche provider of customized wireless devices that primarily allow its customers to remotely monitor security systems, storage tank levels, and inventory purchases. The company also moved into the over-the-road asset tracking business with its acquisition of SkyBitz in 2012. After modest sales growth in 2010 and 2011, Telular Corporation (NASDAQ:WRLS) found much better overall momentum in 2012, with a 76% gain in total unit sales of its hardware devices.
In FY2013, Telular Corporation (NASDAQ:WRLS) has continued to report strong results, with increases in revenues and operating income of 48.0% and 49.9%, respectively, versus the prior-year period. The company has benefited from double-digit growth in its event monitoring segment, as well as solid gains in its acquired asset tracking business. In addition, Telular Corporation (NASDAQ:WRLS) has reached critical mass in its operations, with a global subscriber base of over 600,000, which has driven economies of scale and higher profitability. However, with Telular Corporation (NASDAQ:WRLS) soon to be going private, where can investors find intriguing opportunities?
In its latest fiscal year, CalAmp Corp. (NASDAQ:CAMP) grew its top-line at the fastest pace of the past five years, with a 30.2% gain over the prior year. The company benefited from larger automobile fleets around the world and customers’ increased desire to create efficiencies in its employees’ usage of assets. CalAmp Corp. (NASDAQ:CAMP)’s operating income also rose sharply, up 116.8% during the period, due to comprehensive cost savings from its decision to fully outsource its manufacturing activities in 2012.
Looking ahead, CalAmp Corp. (NASDAQ:CAMP) is well positioned for future growth as businesses and governments increasingly want to use real-time data on their assets in
order to optimize their organization’s productivity. More specifically, the auto insurance industry’s use of vehicle sensors to effectively manage usage-based policy discounts is a large, potentially rich source of profits for CalAmp Corp. (NASDAQ:CAMP). In addition, the company should be able to increase its market share in international markets, 18% of FY2013 sales, especially in high-risk areas that require constant monitoring of high-value infrastructure assets.
Despite sales growth that pales in comparison to the levels of a decade ago, Cisco Systems, Inc. (NASDAQ:CSCO) is still the king of networking and has significantly streamlined its business over the past two years. The company’s goal is to generate efficiency gains for its customers through network-focused products, including unified wireless networks and collaboration tools. Cisco Systems, Inc. (NASDAQ:CSCO) has also eschewed the go-it-along strategy, partnering with fellow tech industry titan EMC Corporation (NYSE:EMC) in a joint venture that will pursue higher sales in the all-important data center arena.
In its latest fiscal year, Cisco Systems, Inc. (NASDAQ:CSCO) reported solid improvement in its financial results, with increases in its revenues and operating income of 6.6% and 31.2%, respectively, compared to the prior year. The company’s sales growth benefited from greater customer adoption of its wireless network products, as well as gains from the current upgrade cycle in its security product portfolio. More importantly, Cisco Systems, Inc. (NASDAQ:CSCO)’s profitability was enhanced by its re-focus on a limited set of core areas, like wireless networking and collaboration software, which has improved its operating cash flow and provided increased funds for improving shareholder value.
While the days of hyper-growth are likely over for the networking equipment industry, there are select pockets of growth that are focused on the security and enterprise asset management areas. With private equity moving into the sector, investors need to be on the lookout for growth and value stories. As such, CalAmp Corp. (NASDAQ:CAMP) and Cisco Systems, Inc. (NASDAQ:CSCO) should be on investors’ watchlists.
Robert Hanley owns shares of CalAmp. The Motley Fool recommends Cisco Systems. Robert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Time to Look at the Network Equipment Space originally appeared on Fool.com is written by Robert Hanley.
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